Clearwater Paper Corp (CLW) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Clearwater Paper fourth-quarter and full-year 2010 earnings conference call.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Ms. Linda Massman, Vice President and Chief Financial Officer.

Thank you. Good morning and welcome to Clearwater Paper's fourth-quarter 2010 conference call. Our press release this morning includes the detail regarding our fourth quarter and year-end, and you will find a presentation of supplemental information posted on the Investor Relations area of our website at www.ClearwaterPaper.com.

Additionally, we provide certain non-GAAP information in this morning's discussion. A reconciliation of being the non-GAAP information to comparable GAAP information is listed in the supplemental material provided on our website.

Before we get started, I would like to remind you that this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. These forward-looking statements are based on current expectations, estimates, assumptions, and projections that are subject to change and actual results may differ materially from the forward-looking statements.

Factors that could cause actual results to differ materially include those risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2009, and more recent quarterly filings on Form 10-Q. Any forward-looking statements are made only as of this date and we undertake no obligation to update any forward-looking statements.

On today's call with me is Gordon Jones, Chairman, President, and CEO. I will begin today's call with financial highlights for the quarter and will be followed by Gordon, who will provide commentary on the different business segments before we take questions.

We reported net earnings for the fourth quarter of $37.8 million or $3.19 of earnings per diluted share compared to net earnings of $47.2 million or $4.01 of earnings per diluted share in the fourth quarter of last year. Excluding $10.5 million in after-tax charges related to the acquisition of Cellu Tissue Holdings and a benefit of $27.1 million related to the cellulosic biofuel producer credit, fourth-quarter 2010 earnings were $21.2 million or $1.79 per diluted common share.

For comparative purposes, fourth-quarter 2009 results included a benefit of $29.7 million or $2.53 per share for the alternative fuel mixture tax credit. Excluding the alternative fuel mixture tax credit, fourth-quarter 2009 earnings were $17.4 million or $1.48 per diluted common share. In addition, our fourth-quarter 2010 results included four days of operating results from our Cellu Tissue acquisition.

Adjusted EBITDA for fourth quarter 2010 was $51.9 million, excluding the Cellu Tissue acquisition costs, versus $51.8 million for the fourth quarter 2009, excluding the alternative fuel mixture tax credit. This resulted in adjusted EBITDA margin for the fourth quarter of 2010 of 15%.

Our Consumer Products segment had fourth-quarter 2010 net sales of $142.9 million, representing an increase of 3.3% when compared to fourth-quarter 2009 net sales of $138.3 million. Segment operating income, excluding $6.3 million of acquisition-related expenses recorded at the segment level, was $13.6 million for the quarter compared to $28.7 million for the fourth quarter of 2009. The reduction in operating income was primarily attributable to higher pulp costs and to a lesser extent continued promotional activity.

Our Pulp and Paperboard segment reported net sales of $222.5 million for the quarter, an increase of 16.5% versus fourth-quarter 2009 net sales of $191.9 million. The segment had operating income of $33.1 million versus $52.9 million in the fourth quarter last year, which included pretax income of $47.1 million from the alternative fuel mixture tax credit.

Net interest expense of $10.3 million was up from $4.2 million in the fourth quarter of 2009 due primarily to our $375 million senior notes issued in connection with the Cellu Tissue acquisition.

Regarding taxes, we recorded a tax benefit of $25.7 million in the fourth quarter of 2010. This benefit was primarily the result of additional cellulosic biofuel credits available for black liquor produced and used for fuel in our facilities but not previously claimed for purposes of a tax credit, as well as the conversion of alternative fuel mixture tax credits to cellulosic biofuel producer credits and the associated uncertain tax division adjustments.

Regarding our balance sheet, for the full year 2010 we had capital expenditures of $47 million including $18.9 million related to construction of our Shelby, North Carolina, converting and papermaking facilities. We continue to estimate that the paper machine and tissue converting facilities will cost approximately $260 million to $280 million which includes the capital already deployed in 2010. Approximately $133 million of the remaining amount will be deployed in 2011 and the balance in 2012.

At December 31, 2010, our pension plans were $55.4 million underfunded compared to $95.9 million underfunded at the end of 2009. This improvement is the result of $25.4 million in contributions and $14.2 million associated with the decision to close and freeze our salary pension plan.

With regard to our liquidity, we had $145 million of unrestricted cash and short-term investments at December 31, 2010, representing a decrease of $211.7 million from September 30, 2010, and a decrease of $45.7 million from December 31, 2009. This decrease resulted from the use of cash to acquire Cellu Tissue partially offset by strong cash flow generation throughout the year.

Our long-term debt outstanding at December 31, 2010, was $539.1 million, which reflects the $375 million of senior notes issued in October 2010, $148.5 million of senior notes issued in 2009, and $15.6 million in assumed debt from the acquisition of Cellu Tissue.

Our financial ratios remain very strong. Total debt to total capitalization, excluding the accumulated other comprehensive loss, was 48.8% while adjusted EBITDA to net interest expense for the fourth quarter of 2010 was 5 times. Now I would like to discuss some of the accounting elements of the Cellu Tissue acquisition.

Our 2010 results only include four days of Cellu Tissue performance due to the acquisition closing December 27, 2010. We incurred total pretax deal costs of $40.2 million. Only $17.2 million is reflected in our fourth-quarter operating results and $3.1 million was reflected in our third-quarter operating results. The remaining $19.9 million was either incurred by Cellu Tissue prior to the acquisition or has been capitalized on our balance sheet.

The actual costs were higher than our previous estimate due to severance expense and special bonuses that were paid to Cellu Tissue employees under existing plans and retention agreements initiated by Cellu Tissue.

Regarding financial reporting, as we begin 2011 we will continue to report two operating segments -- Consumer Products, which will include Cellu Tissue operations, and Pulp and Paperboard, consistent with what we have done historically. We have also decided to change the way we transfer internal pulp from a market price transfer to a cost transfer, because we expect to consume essentially all of our pulp internally versus selling market pulp as we have in the past.

I will now turn the call over to Gordon.

Thanks, Linda. As Linda pointed out, we finished the year strong with very solid financial results in the fourth quarter. 2010 was a very successful year for Clearwater Paper as we continued to generate strong operating results despite a very challenging economic climate. 2010 was also a transformational year as we clearly defined and began executing our strategy to grow our Consumer Products division and optimize our Pulp and Paperboard division.

To recap the year, on May 18 we announced our intent to build a new paper machine and an additional seven converting lines for a total of $260 million to $280 million, which we expect will ultimately be capable of producing approximately 10 million cases or 70,000 tons of tad tissue product annually. On June 10, we completed our selection process and chose Shelby, North Carolina, as the location for this plant.

On September 16, we announced that we had reached an agreement to acquire Cellu Tissue. On October 13, we completed the issuance of $375 million in senior notes in connection with the payment of the purchase price for Cellu Tissue and the refinancing of Cellu Tissue's debt. And on December 27, we completed the Cellu Tissue acquisition and launched our integration plans with a view to achieving an expected $15 million to $20 million of run rate net synergies by the end of 2012.

In addition, we made progress at our Pulp and Paperboard division to improve product mix and launched our lean manufacturing initiative to drive waste out of our manufacturing processes.

Our Consumer Products segment revenue grew 3.3%. This was due to a 6.6% volume increase versus the fourth quarter of 2009 plus the inclusion of four days of Cellu Tissue revenue in Q4 results which was partially offset by a 3.2% reduction in net selling prices driven by an increase in promotional spending. We maintained very high production levels, posting an increase of 3,454 tons sold versus the fourth quarter of 2009.

As a reminder, these volume and pricing figures are available on our website as supplemental materials in the Events and Presentations section of the Investor Relations page. Higher pulp costs were the primary driver of lower earnings for the quarter in this segment.

Our Pulp and Paperboard segment had net sales 16.5% higher than the same quarter last year. The increase was attributable to a paperboard price increase of 9% on similar volume shipped versus the fourth quarter of 2009. Pulp prices were up 24.8% in the fourth quarter and volume increased 81.2% versus Q4 of 2009.

As it relates to our outlook, I will provide some commentary that will be reflective of our combined business. In our Consumer Products segment, we expect price and promotion pressure to continue through 2011. We also expect newly acquired Cellu Tissue operations, which, based on unaudited numbers, generated a $10.6 million operating loss during calendar year 2010, including $19.3 million of pretax acquisition-related expenses and $33.6 million of depreciation and amortization, to increase slightly as we begin to improve the efficiency of converting equipment and start working on delivering the synergies we expect.

In the Pulp and Paperboard segment, we expect continued solid performance. We expect that pulp costs will be lower in 2011 compared to 2010, but remain at levels consistent with the second half of 2010. We also expect transportation and chemical costs to increase as oil prices rise.

The estimated annual of effective tax rate for 2011, excluding discrete items, is expected to be approximately 34%. We anticipate that net interest expense during 2011 will be $41.5 million, reflecting interest costs associated with our debt, capitalized interests related to Shelby, and amortized debt costs and interest income.

Our capital expenditure budget for 2011 is expected to be $175 million to $180 million, largely driven by Shelby, North Carolina, facilities construction with the balance deployed to other operating projects. We expect to spend approximately $133 million related to Shelby in 2011.

Major maintenance expenses are expected to be approximately $18 million in 2011 for our combined company, $15 million of which we expect to spend in the first quarter and the balance in the third quarter. All related to the Lewiston facility.

As a reminder, the major maintenance at our Lewiston pulp and paperboard facility occurs generally every 12 months, while at Cyprus Bend it is usually every 18 months. We don't have any planned major maintenance for Cyprus Bend in 2011.

Now that we have acquired Cellu Tissue we wanted to provide some color on the business. The Company had reported some challenges in its fiscal second quarter of 2010 ending August 26, 2010, primarily related to higher pulp prices, and those challenges continued to impact Cellu Tissue operations through the end of the calendar year.

We expected this as a result of our due diligence and we also had identified some challenges they were facing in growing their volume and achieving their expected pricing targets. While we continue to expect the Cellu Tissue acquisition to be accretive in 2011, we anticipate a challenging near-term performance from this business until we can begin making the changes we feel are necessary to unlock the strategic benefits and synergies from the acquisition.

Despite the challenges, we remain very confident that this acquisition makes great strategic and financial sense as we begin working on improving the performance of this business in addition to delivering the synergies.

Before we move to some questions, I also want to mention that we will be presenting at the Goldman Sachs 2011 Montreal Paper Conference on Wednesday, March 16. Details are provided on our website. If you are interested in meetings, please contact Sean or Goldman Sachs to arrange.

Thank you for tuning into our prepared remarks and, operator, we will now take some questions.

(Operator Instructions) Roger Spitz, Bank of America Merrill Lynch.

Thank you and good morning. Can you tell us what Cellu Tissue's sales and EBITDA for the three months ending November 2010 as well as their sales and EBITDA for the month of December, other than the four days that you owned them?

Roger, we really don't have that. One of the things that we have done is we feel like we have given a lot of insight into Cellu Tissue's 2010, both with the earnings release and through some of those comments with the numbers that I gave in my script. And we are really focused, going forward from here, on those kinds of challenges.

We commented in my script we didn't have any surprises from the due diligence but we are just concentrating on our efforts going forward and grabbing off some of that low-hanging fruit relative to opportunities about putting them together. So we really just wanted to look forward, we didn't want to spend a lot of our energy trying to figure out a business that we really didn't own at the time.

Okay. How much of the $260 million to $280 million of the Shelby CapEx was spent in 2010?

$18.9 million.

$18.9 million, okay. And has there been any change in the timing of the start-up of either of the Shelby initial converting lines and/or the tad machine?

No, we stay right on track, Roger. We are in good shape, all per previous announcements. Folks there are doing a terrific job. And I would really add that the state of North Carolina has done a terrific job at supporting us as well as Cleveland County and the legislatures there.

So we are feeling very, very good. We feel even better every day about picking Shelby.

Great. You mentioned the remaining $19.9 million of Cellu Tissue acquisition costs; part was already expensed through Cellu Tissue but it sounded like part has been capitalized and presumably will be paid in the first quarter or two. How much outflow, how much of that $19.9 million represents expenses that we will see in the first quarter of 2011?

It's really just going to be the debt that we have capitalized -- the fees on the debt that we capitalized, all amortized [off].

Great. And you have said you are now going to transfer pulp internally differently, and maybe you said this and I didn't hear it. Are you now going to transfer it at cost instead of at market from consumer -- to consumer from pulp?

Yes, that is right. It's going to be at the cost of producing from -- the TPD is going to transfer that to consumer products. The reason for that is, as was mentioned, and I think related to with Linda's comments, Roger, was that we are moving away from selling pulp externally to pull it inside. So we really don't have any good benchmarks anymore to measure that against.

Great. Thank you very much.

You bet.

Graham Meagher, TD Newcrest.

Good quarter, first of all. Just couple of questions. So you talked about using the pulp internally; is that a -- do you expect that to happen fully in Q1 or is that more later on through 2011?

We really haven't given the full schedule, especially with that because we are still working on that, but it's going to take a little time to do that. The paper machines at Cellu Tissue have been used to buying outside pulp.

Our pulp that really is all produced at Lewiston needs to be tested on those machines. We need to make sure that we have the right product quality capabilities with that particular pulp, so it's going to take us a little while. So I would not expect it to happen all that fast.

Okay. And just for Linda, maybe a couple, just a little nitpick on the acquisition costs for this quarter. You noted in the press release $6 million was allocated to the consumer products segment. The remaining $11 million or so, is that in the corporate line or does that show up in SG&A?

It shows up in SG&A but it is in the corporate line, so both.

Okay. So that is -- when we look at the corporate of $18 million this quarter that is one of the reasons why it's higher there than it has been historically?

That is right; in addition to we have added some people to support our Southeast expansion with the Shelby project as well.

Okay, great. Thank you. When we look at the tissue price realizations for the quarter, down just a little bit quarter over quarter a couple of percent or so, you noted there is still some promotional pressure there. Is part of that, the mix I realize is only four days, but the mix of Cellu Tissue coming into play there?

Yes, that is a very, very small part of it. Graham, the promotional environment continues to exist. We almost say that every time and I feel I sound like a broken record, but it does continue to exist and promotions are an important part of this particular business.

I guess my focus is that when I look at that kind of pricing and when I -- I would refer you back to that supplemental that is attached to the webcast is probably where you are getting that number. From 26.73% down to 26.07% that is 2.5%, and when you look across previous quarters it has really been almost flat. Now that depends on how you define 2.5%, but it has really been almost flat.

The fun part about that same supplemental, I might mention, is that we are up on every other variable associated with that. And Consumer Products, of course, with the volume up and paperboard volume and pricing is up too. But there is continued promotional spending in consumer products.

Okay. Just realizing it's early on still with the Cellu Tissue integration, can you just sort discuss some of the activities that you are going through in that process there?

Yes, it has been very exciting for us. And as I mentioned in my remarks, we are still feeling really terrific about it. I mean I could give you just a long list, but just give you a couple of ideas of what we are sort of calling the low-hanging fruit.

We have a converting facility in Chicago that produces normal converting broke. It's just the things that come from logs that get cut off and you have these doughnuts and those types of things that just go with the normal tissue process. We are now going to take that back to Nina instead of shipping it all the way back to Lewiston.

So that saves us on Consumer Products freight, but it actually also lowers Nina's cost of fiber because Nina was purchasing pulp from the outside, of course, at the full outside purchase price of pulp. So we do two things. We reduce freight and we reduce some of the outside purchasing requirements. So things like that.

We have also been looking at what we could do to really optimize the converting capacities that we have throughout the whole system. We have an operation in Nina that has a very terrific wide operating line; it's not running full.

And we think that through some combinations of moving some wrappers around and shifting some of our products from different sites we can actually create additional converting capacity by doing that. So we are very excited about that and, of course, that helps us a lot from a cost standpoint as well as a customer service standpoint.

So exiting warehouses around the country that we may not need as Shelby comes up according to schedule that Roger had asked about earlier that will give us some additional warehouse space. We can exit ourselves out of a Texas finished goods warehouse and put some of that inventory there or into the Oklahoma City plant, which has some space.

But anyway, I could go on and on. But there is lots of things like that that as we get deeper and deeper into the business feel really, really fun to do. Very exciting for us.

That is good color, thank you. Just last question. There is -- one of your competitors has stated their plans to sell or shut a mill in the Northwest and specifically some of that product was going into private label. Can you comment as to whether they were a direct competitor with any of your products and maybe discuss what the impact could be there?

Yes, we really don't talk about M&A activities, Graham, but I certainly know what you are talking about, where they are located, and have seen the announcement about the exit of private label. I think what will be important is what really happens with that operation, whether it would continue to run or not run and then what will they run. That is so speculative at this point it's really hard to know.

We feel good about where we are and what we are in the middle of right now on the integration of Cellu Tissue and we are going to concentrate full speed on that. But when it comes to M&A types of things we have a policy that says we really don't want to talk about that stuff.

Okay, great. Thanks, that is all I had.

Thanks, Graham.

Steve Chercover, D.A. Davidson.

Good morning, everyone. First question, by virtue of transferring your pulp at cost, presumably sales and profit dropped at the PPP division and profit, but not sales, will rise at Consumer Products? Is that the way we should think of this?

Absolutely, Steve. That is the right answer.

And you don't want to talk about your competitors, but if they are buying their pulp at market will that make benchmarking your profitability kind of an apples and oranges exercise?

You know, I don't think so over time. We went back and looked at the five-year average impact of that transfer price and it's less than $1 million on profitability.

Now in any given year it does fluctuate. I think it's actually going to be a little bit easier for you to see the underlying trends of the business if you take some of that volatility of that market pricing in a very small market out of the mix.

All right. So you just want us to think of it as if the pulp business -- sorry, the tissue business was fully integrated?

Right.

But nonetheless, Clearwater used to buy, what, 84,000 tons a year for the tissue business externally and Cellu Tissue buys more than that. Can you give us some sort of a sensitivity to a, call it, a $50 per ton price increase or decrease maybe at the EBIT level?

I am going to pass that one to Linda but let me just make a quick comment about it, Steve. The new numbers 84, 85 that is right, that is where we were. And then the amount that we will be on an integrated basis as we are today, having purchased Cellu Tissue, is about 400,000 tons. So that is the outside purchase price or the outside purchase volume is about 400,000 tons.

But, Linda, I don't know if you have anything to share on that or not?

Steve, I think it really depends on the mix of the pulp you use and it is going to depend on how much we purchase. As Gordon mentioned, we purchase today about 15% of our needs externally. That will increase now with the acquisition of Cellu Tissue as we move into 2011 to be more of a, call it, 65/35 split.

So there is a lot of different factors that go into it. I don't think it's quite that simple.

Well, and even the 400,000 ton number, I mean a lot of that is recycled fiber, right, not pulp?

Yes, some of it is, right. But it's still basics needs, purchasing needs so -- and that is, you make a good point, is that that range from recycled all the way to northern bleached softwood kraft is quite large. And we are purchasing a whole range of things from softwood and hardwoods and eucalyptus and all types of different fibers. That is what makes it difficult to give a good sensitivity number.

Yes. And sorry to belabor the whole pulp situation, but to me it's one of the big unknowns. When you say that you are going to sell all your pulp from Lewiston, does that mean you are not going to exploit opportunities to trade?

So for instance, there is a pulp mill in [Clocade] that once was part of the family. If they wanted to sell you some in NBSK into your Wisconsin operations, would you not use that as opposed to shipping from Idaho?

Well, maybe could. It will all boil down to what the logistics are and what the price is, but directionally think of us as trying to integrate the pulp that is going in external sales.

As I mentioned to a previous caller, it's going to take us a little while to do that to make sure that we have the right quality pulp at the machines because this is more -- the pulp for us in Lewiston is more like a radiated pine. It's a softwood kind of pulp. It's not NBSK and certainly not hardwood because it's a softwood type of pulp.

But if we can use it and it makes sense for us and the logistics sound right, we are going to leave all those options for our purchasing and logistics folks on the table. But right now, directionally our plan is to try to pull that pulp to the inside as much as we possibly can. We just think that is to our advantage.

Understood. The last two quick questions. Is Oklahoma City up and running now?

It is, it is. Up and going and doing well and we are excited about it. We have got that, of course, along with a lot of other operations with capacity and we are very excited about the options that we have got.

As I mentioned also to a previous caller, I could go through some of this low-hanging fruit and probably bore all listeners to death, but it's giving us what we anticipated when we did the acquisition. It's giving us all kinds of wonderful options about having this national manufacturing footprint underneath our national sales force.

Great, I will just leave it there. Thanks so much.

Okay, thanks, Steve.

Eric Hollowaty, Stephens Inc.

A couple of quick ones. Consumer Products operating income margin, when you add back the Cellu Tissue related acquisition expenses, came in actually higher than I would have thought. And sequentially, assuming I did my math right, looks to have been up about 200 basis points sequentially from 3Q.

What is the reason for that? How are you able to drive that sort of improvement sequentially?

Well, I will leave some of that color to Linda, too, but let me give you just -- our business, frankly, is very good. It's very good. And the best thing I can do is really kind of point you toward that supplemental chart that I always spent a lot of time on in these calls back to the webcast.

If you look at the consumer products side, you can see that our total tissue tonnage is up from that 207,000 level to the 218,000 level. And if you look at the last two quarters, the paper machines have run very well; converting has been running very well.

So with Q3 at the 55,000 ton level, Q4 at the 55,000 ton level those are both up and those are running awfully well. So it's helping us a lot and we help our margin, of course, with volume.

Right. Was there scheduled maintenance and repair expenses in the quarter? You had guided before to, I think, $2.5 million. What was it actually at the end of the day?

Yes, we ended up having scheduled maintenance of $1.6 million in fourth quarter.

Okay, great. I thought I recalled reading recently about some pending labor contract renewal negotiations in Idaho. Have those been resolved or are those negotiations still pending?

Negotiations are still ongoing, so we really don't want to comment about that. But they are still ongoing.

Understood. Okay, great. Thanks very much, guys.

Great. Thanks, Eric.

Roger Spitz, Bank of America Merrill Lynch.

The $27.1 million cellulosic biofuels producer credit, just wanted to make sure that is all showing up in the income tax line in the P&L, is that correct?

That is right.

Okay. And the $61 million of deferred tax liability is that related to the acquisition of Cellu Tissue? And whether it is or isn't, will that likely be turned into a near-term cash outflow?

There is an impact at Cellu Tissue, but not necessarily near-term reversal. And, Roger, I would like to just expand a little bit on your question on the $27.1 million, just to give folks a little bit more color as to what is driving that number. It might help you in some of your calculations.

We had mentioned on last quarter's call that we were going to claim about 25.3 million new gallons under the CBPC credit and so we did do that. Then in addition to that we also converted about 39.8 million gallons from the alternative fuel minimum tax credit to the cellulosic. So we had a total of 65 million gallons associated with cellulosic biofuel credits this quarter.

Then, of course, those are taxable, so when you tax effect them you end up with a tax effective number of $42.7 million benefit. But then we ended up having to reverse for those gallons, the 39.8 million gallons, that we converted to cellulosic. We had to back those out of the alternative fuel minimum tax credit payment and that was about $19.9 million.

Then we had the balance was the associated uncertain tax position adjustments we had to make. So that gives you some sense of how that was derived.

And let me -- related to all that, is there, of what you are showing now, any cash inflows or outflows after December 31, 2010? Secondly, are you going to go back and try to convert any additionals or look for any additional gallons that you might employ the cellulosic biofuel producer tax credit?

Yes, so we will have to repay that $19.9 million that I mentioned in all of those calculations, and we are going to just continue to look at the opportunity to convert gallons from cellulosic -- or from alternative fuels to cellulosic as it makes sense for us.

So perhaps that $19.9 million might have been in fact in that $61 million of the deferred tax liability or somewhere else on your liability side of your balance sheet?

I don't think so. It's just a reversal through the expense line.

Okay. Will that $19.9 million be paid out, do you believe, in the first quarter of 2011?

Yes, we believe it will be.

Great, thank you very much.

Thanks, Roger.

[Tanisha Keshava], [Porter Orlin].

Hi, guys. I just had a follow-up question on the margins on the consumer products side. So on second half it looks like you kind of got -- you were running around high-single digits and the last reported number from Cellu Tissue was overall even margin of kind of 1.5%.

So kind of combining those two and then maybe some benefit from the pulp, what is the right way to think about run rate for next year? Is high-single digit a good benchmark or just maybe some guidance on that?

Tanisha, it's Linda. We are not really going to give a lot of guidance on the Consumer Products business. What we have said in the past is the cost structure associated with that business is heavily dependent on the pulp market, as you are well aware, and that one is a very difficult market to predict.

What we did give in our market outlook, which we hope helped, was that we anticipate year-over-year pulp costs to be down only because you saw that large spike in 2010 midyear associated with the Chilean earthquake. And we expect that those pulp costs will be very similar to what we experienced in the back half of the year. So they kind of started trending down.

So that is kind of what we are anticipating for that. Then the transportation costs, we do expect those to be pressured by the oil prices. Where that goes is anybody's answer at this point, but, for the most part, those are the two big movers that we are seeing into 2011. Hopefully that helps.

When do you expect to start seeing savings from lower freight kind of on an offset to the higher oil?

So what we had said in the past was the $15 million to $20 million of synergies by the end of 2012. We will begin seeing some of that but we will also be incurring some costs. So I would really expect a net benefit on the synergies at the end of 2012.

Okay, got it. Then maybe just last question on the Pulp and Paperboard similar to the question on the Consumer Products. I don't know how much you can answer but the profitability of that segment was much higher this year than year's past obviously driven by strong performance. Any guidance on how to think about run rate for 2011 on that?

I think in the outlook comments what we tried to indicate is we expect that to be a pretty steady performance versus what we saw in 2010.

Great.

One way to think about that, Tanisha, is that we are balancing our order book against our supply and it seems like that our customers and stuff appreciate that. So it has been a very good time for the pulp and paper division and they have run very well.

One of the things that has been helping them is that their productivity is improving and that, of course, creates more tons of pulp and/or of paperboard to sell. So all is good on that front.

Got it, great. Thank you.

You bet.

This does conclude the Q&A session. I would now like to turn the call back over to Gordon Jones.

Well, yes, just as a brief summary, we really appreciate everyone's listening in this morning. We feel very, very good about our results and we are moving along very rapidly relative to the integration of Cellu Tissue, concentrating on that.

Shelby is doing quite well. It's on track, as I mentioned earlier, both from a spending and a quality and a timing standpoint. So we feel terrific about that, terrific about the support we are getting in North Carolina from those folks that are out there helping us.

I would encourage you to take a look at our supplementals on the website and see that the health of our basic business is awfully strong. Having said that, thank you all for participating. We look forward to talking to you the next time around.

Thank you. Ladies and gentlemen, this does conclude our conference call for today. Thank you for your participation and have a wonderful day.

Thank you.